The North Carolina House last week passed legislation that would enact substantive reforms in the development bonding process, a common headache for both commercial and residential developers in many jurisdictions across the state.

HB 721, ‘Subdivision Ordinances/Land Development Changes’, passed the House April 22nd by a vote of 113 – 2, and now heads to the Senate for consideration. If signed into law, it would curb a number of abusive practices by some local governments with respect to the bonding and letters of credit required for subdivision roads and other development improvements. In short, the bill would:

Clarify that a developer can choose from three commonly used options for posting a performance guarantee (surety bond, letter of credit, cash or other equivalent);

Require the local government to return the guarantee upon completion of the improvements on which they were posted;

Allow the developer elect the method of guarantee by which a performance guarantee is extended if improvements are not complete;

Limit the ability of local governments to put a ‘permit hold’ on existing lots as leverage to require improvements in a future phase of the development;

Cap the amount of the guarantee at 125 percentof the reasonably estimated cost of the improvements at the time the guarantee is issued; and,

Prohibit the use of the performance guarantee for ongoing maintenance of the completed improvements.

Thanks to Representative Rob Bryan (R-Charlotte) for sponsoring this important legislation, and to Representatives Dan Bishop (R-Charlotte), John Bradford (R-Cornelius) and Skip Stam (R-Raleigh) for their support!